Use of Proceeds
You can use a 7(a) loan to: expand or renovate facilities; purchase machinery, equipment, fixtures and leasehold improvements; finance receivables and augment working capital; refinance existing debt with compelling reason; finance seasonal lines of credit; construct commercial buildings; and/or purchase land or buildings.
Terms, Interest Rates and Fees
The length of time for repayment depends on the use of the proceeds and the ability of your business to repay: usually five to 10 years for working capital, and up to 25 years for fixed assets such as the purchase or major renovation of real estate or purchase of equipment (not to exceed the useful life of the equipment).
Both fixed and variable interest rates are available. Rates are pegged at no more than 2.25 percent over the lowest prime rate* for loans with maturities of less than seven years and up to 2.75 percent for seven years or longer. For loans under $50,000, rates may be slightly higher.
The SBA charges the lender a nominal fee to provide a guaranty, and the lender may pass this charge on to you. The fee is based on the maturity of the loan and the dollar amount that the SBA guarantees. On any loan with a maturity of one year or less, the fee is just 0.25 percent of the guaranteed portion of the loan.
On loans with maturities of more than one year where the portion that the SBA guarantees is $150,000 or less, the guaranty fee is 2 percent of the guaranteed portion.
On loans with maturities of more than one year, where the SBA's portion exceeds $150,000 but not more than $700,000, the guaranty fee is 3 percent, and it is 3.5 per ent on loans over $700,000.
You must pledge sufficient assets, to the extent that they are reasonably available, to adequately secure the loan. Personal guaranties are required from all the principal owners of the business. Liens on personal assets of the principals may be required. However, in most cases a loan will not be declined where insufficient collateral is the only unfavorable factor.
Your business generally must be operated for profit and fall within the size standards set by the SBA. The SBA determines if the business qualifies as a small business based on the average number of employees during the preceding 12 months or on sales averaged over the previous three years. Loans cannot be made to businesses engaged in speculation or investment.
Maximum Size Standards
Manufacturing from 500 to 1,500 employees
Wholesaling - 100 employees Services - from $2.5 million to $21.5 million in annual receipts
Retailing from $5 million to $21 million
General construction - from $13.5 million to $17 million
Special trade construction - average annual receipts not to exceed $7 million Agriculture from $0.5 million to $9 million
What You Need to Take to the Lender Documentation requirements may vary; contact your lender for the information you must supply.
Common requirements include the following:
· Purpose of the loan
· History of the business
· Financial statements for three years (existing businesses)
· Schedule of term debts (existing businesses)
· Aging of accounts receivable and payable (existing businesses)
· Projected opening day balance sheet (new businesses)
· Lease details
· Amount of investment in the business by the owner(s)
· Projections of income, expenses and cash flow
· Signed personal financial statements
· Personal resume(s)
What the SBA Looks for:
1. Good character
2. Management expertise and commitment necessary for success
3. Sufficient funds, including the SBA-guaranteed loan, to operate the business on a sound financial basis (for new businesses, this includes the resources to meet start-up expenses and the initial operating phase)
4. Feasible business plan
5. Adequate equity or investment in the business
6. Sufficient collateral
7. Ability to repay the loan on time from the projected operating cash flow.